It’s official: Google is leaving China. Well sort of.

The search giant announced yesterday that its Chinese search engine,, will no longer be operated from within the country. Instead,
it will run from servers based in Hong Kong, enabling China to drop its
censorship of search results, something it had obviously tried
unsuccessfully to receive permission from the Chinese government to do.

When Google first threatened to pull out of China following hacking attempts it believes were orchestrated by the Chinese government, I argued that Google’s threats were primarily motivated by a desire to renegotiate the rules of the game in China. The reason: the massive Chinese market is unlike any other Google competes in, and for that reason it has failed to dominate it as it has almost every other global search market. Censoring search results may have been something Google co-founder Sergey Brin didn’t like personally, but ‘censorship‘ has also been a convenient scapegoat for the company’s shortcomings in the Chinese market.

Not surprisingly, the Chinese government isn’t impressed with Google’s decision to leave one foot in China and put one foot in Hong Kong, all the while dropping its censorship of search results. A statement published by Xinhua, China’s state-run news agency, reads in part:

Google has “violated its written promise” and is “totally wrong” by stopping censoring its Chinese language searching results and blaming China for alleged hacker attacks, a government official said early Tuesday morning.

Google has violated its written promise it made when entering the Chinese market by stopping filtering its searching service and blaming China in insinuation for alleged hacker attacks,” said the official.

This is totally wrong. We’re uncompromisingly opposed to the politicization of commercial issues, and express our discontent and indignation to Google for its unreasonable accusations and conducts,” the official said.

The official Chinese response leaves little doubt: the Chinese government wasn’t willing to give an inch in its ‘negotiations‘ with Google, and it is still totally unmoved today.

The big question now is whether or not Google will be able to effectively compete in China from a base in Hong Kong. Already, it appears that the internet filters operated by the Chinese government are hard at work. That will certainly make it difficult, if not impossible, for Google to maintain a reliable presence in the country, and the Chinese government can effectively cut Google off at will.

As for Google’s business operations in the country, in the past week, a number of companies associated with Google expressed concern that any move by Google to defy the Chinese government could potentially put them in harm’s way. Google seemed to address those concerns in its post:

…we would like to make clear that all these decisions have been driven and implemented by our executives in the United States, and that none of our employees in China can, or should, be held responsible for them.

This statement may be Google’s most naive. Google is certainly aware of the risks its actions will create for Google-affiliated individuals and businesses in China, yet its statement pretends that these individuals and businesses won’t pay a price for its actions, even though they absolutely will in some way. Put simply, it’s unclear whether Google management is simply trying to save face and salvage something or whether it is truly clueless. At this point, however, that doesn’t matter.

It’s lamentable that success in the Chinese market means kowtowing to the Chinese government, which definitely won’t win any awards for sensibility when it comes to its micromanagement of the internet. But doing business in other countries often requires that companies play by rules that are less-than-desirable. The global economy isn’t homogenous, and companies need to be realistic.

The most successful companies understand that success in difficult environments is dependent upon balancing wants and needs, and choosing wisely the battles that do get fought. Google chose the wrong fight, and fought it the wrong way. And even so, it has proven that it is fundamentally incapable of making the tough decision: should we stay or go?

Google is instead trying to have its cake and eat it too, from the shores of Hong Kong of course. Maybe it can, but right now it looks like all that’s left of Google’s China cake are crumbs.